project - international finance

INTERNATIONAL FINANCEFINAL PROJECT

TOPIC: WORLD BANK

SUBMITTED TO: MR. ADNAN SHEIKH

DATED: MAY15, 2009

SUBMITTED BY: AMNA ALTAF SP08-MBA-010

SABA ATHAR SP08-MBA-072

WAQAS SHABBIR SP08-MBA-098

ZOHAIB AFTAB

SP08-MBA-100

SECTION: “B”

COMSATS INSTITUTE OF INFORMATION TECHNOLOGY, LAHORE.CONTENTS OUTLINE

Introduction

History

Activities of World Bank

Millennium Development Goals

Key Five

factors

Loans Grants

Other Services

Areas Of Core Operation

Role Of World Bank Within Pakistan

Supporting Reforms

Working With Pakistan Poverty Alleviation Fund

Helping The Victims Of Earth Quake

Working For improved education outcomes

Focusing on Un Served Low Income Communities

Relying On Local Expertise

Helping Pakistan fight Against Polio

Criticism

Monopoly of Powerful Countries

COMSATS INSTITUTE OF INFORMATION TECHNOLOGY, LAHORE. 2

Dual Role Of World Bank

Self interest of U.S

Injustice While Choosing President

Lack Of Transparency

Conclusion

WORLD BANK

INTRODUCTION: World Bank is an organization that was established after the World

War II at New Hampshire during the Bretton wood agreement July 1944,

the bank was basically started to help the developing counties of Europe

but afterwards with the passage of time it expands its activities to the other

developing nations of the world in order to rehabilitate and reconstruct,.

The World Bank formally began operations on 26th June 1946. The initial

authorized capital of the bank was $12 million. And France in 1947 was

the first to get the loan of $ 250 million for the post war construction.

In early years the bank focused on the reconstruction of the

countries damaged in result of humanitarian emergencies, natural

disasters, or post conflict rehabilitations and it lasts till 1967. But now days

the bank has enhanced its priorities and sharpened its focus towards the

poverty reduction. World Bank staff was once consisted of engineers and

financial analysts only, but today social scientists, public policy experts

and economists are also included in the staff of World Bank.

The World Bank is the largest public development institution in the world,

lending around US$ 25 billion a year to developing countries. The main

purposes of the Bank "to assist in the reconstruction and development of


territories of members by facilitating the investment of capital for

productive purposes" and "to promote the long-range balanced growth of

international trade and the maintenance of equilibrium in balances of

payments by encouraging international investment ... thereby assisting in

raising the productivity, the standard of living and conditions of labor in

their territories".

The Bank aims to achieve these goals through the provision of long-term

loans to governments for the financing of development projects and

economic reform. Voting power on the Bank's board is based on the

members' capital subscriptions which mean the members with the greatest

financial contributions have the greatest say in the Bank's decision-making

process.

Interest rates on World Bank loans are revised every six months

and typically, the Bank charges borrowers a rate of interest 0.5 per cent

above its own cost of borrowing on the international market, the proceeds

going towards paying the Bank's operating costs and to add to reserves.

Loans were originally supposed to be given only to "specific projects"

usually infrastructural projects, such as the construction of highways,

dams, and telecommunications facilities, and social welfare projects, such

as those in the health and education sector. In 1980, the Bank introduced

adjustment lending under its structural adjustment programmed (SAP) to

provide financing to countries experiencing balance of payments problems

while stabilization measures took effect. These loans are provided to

countries for social, structural reforms, for example for the development of

national financial and judicial institutions. The World Bank attaches

conditions to its loans with the stated aims of ensuring the country's

economy is structured towards loan repayment

SISTER INSTITUTIONS:


International Bank for Reconstruction and Development (IBRD)

International Development Association (IDA)

International Finance Corporation (IFC)

International Investment Guarantee Agency (MIGA)

Multilateral centre for settlement and Investment disputes (ICSID)

HISTORY OF WORLD BANK:

World Bank is an institution which came into being as a result of

Bretton wood agreement held in July 1944; during the early years of its

commencement the World Bank lent money in a careful manner, through

proper screening of loan applicants. Major functions fulfilled by World

Bank in those days were reconstruction and development

John mcCloy was elected as the very first president of World Bank,

and France was the first country to receive the loan from the World Bank

where as the two other applicants at the same time were rejected, due to

the communist element in French cabinet they were facing difficulty in the

approval of loan, as soon as this element was removed it took a couple of

hours for the application of loan to be approved, the loan was awarded to

France at strict conditions. The end use of the fund was monitored by the

staff of World Bank to ensure the repayment of the debt,

Initially the world bank serves only to europeon countries, but when

the aid received by the developing europeon countries started competing

directly to the loans of the world bank, the institution in collaboration to

Marshall’s plan of 1947 sharpened there focus towards the non-europeon

third world countries.

Poverty alleviation and access to basic needs were the two main

focuses of the bank during the late 60`s. but due to this a consequence

rise that the debts on developing countries started increasing rapidly


according to an estimate 20% annual increase was noted in the debts of

third world countries In this era the frequency of borrower nations was

intensely increased as the target market was shifted from infrastructure to

social services.

In 1968 when McCloy was replaced by the Robert McNamara, the former

President of ford motor and United States secretary of defense, the

technocratic management style was implemented in the bank. In order to

improve the literacy rate and to bring reforms in the agriculture sector

McNamara altered the bank’s policy towards the building of schools and

hospitals a new system of gathering information was launched so that the

applications of loan could be processed quickly, when the treasure

Eugene Rothberg was asked to find some new sources outside the

northern banks it was when the global strategy implemented to gather the

capital from global bond market

In 1980 Robert McNamara was replaced by A.W.Clausen and he was

appointed by the U.S president and replaced most of the staff members

working in the era of McNamara and instituted new ideological focus in the

bank. In 1982 Anne Kruger was appointed at the World Bank and she

shifted a policy of the bank. Kruger was famous of her criticism of

development funding as wall as third world governments as rent seeking

states .lending for the purposes of services was done from 1980-1989 to

third world. In the late 1980’s UNICEF reported that World Bank was

responsible fro the “reduced health, nutritional and educational levels for

the millions of children in Asia, Latin America and Africa. From 1989 to

present, World Bank policy has shifted greatly, largely in response to

criticism from a plurality of groups. Environmental groups and NGOs are

often now integrated into the lending practices of the bank in order to

mitigate the negative results of the previous era that prompted such harsh

criticism. Bank projects now explicitly embrace a "green" focus

.ACTIVITIES OF THE WORLD BANK:


MILLENNIUM DEVELOPMENT GOALS:

The World Bank's current focus is on the achievement of the

millennium development goal (MDGs), lending primarily to "middle-income

countries" at interest rates which reflect a small mark-up over its own

(AAA-rated) borrowings from capital markets; while the IDA provides low

or no interest loans and grants to low income countries with little or no

access to international credit markets. The IBRD is a market-based

nonprofit organization using its high credit rating to make up for the

relatively low interest rate on its loans, while the IDA is funded primarily by

periodic "replenishments" (grants) voted to the institution by its more

affluent member countries.

FIVE KEY FACTORS:

The Bank’s mission is to aid developing countries and their

inhabitants to achieve development and the reduction of poverty, including

achievement of the MDGs, by helping countries develop an environment

for investment, jobs and sustainable growth, thus promoting economic

growth through investment and enabling the poor to share the fruits of

economic growth. The World Bank sees the five key factors necessary for

economic growth and the creation of an enabling business environment

as:

Build capacity: Strengthening governments and educating

government officials.

Infrastructure creation: implementation of legal and judicial systems

for the encouragement of business, the protection of individual and

property rights and the honoring of contracts.

Development of Financial Systems: the establishment of strong

systems capable of supporting endeavors from micro credit to the

financing of larger corporate ventures.

Combating corruption: Support for countries' efforts at eradicating

corruption.


Research, Consultancy and Training: the World Bank provides

platform for research on development issues, consultancy and

conduct training programs (web based, on line, video conferencing

and class room based) open for those who are interested from

academia, students, government and non-governmental

organization (NGO) officers etc.

The Bank obtains funding for its operations primarily through the

IBRD’s sale of AAA-rated bonds in the world’s financial markets. The

IBRD’s income is generated from its lending activities, with its borrowings

leveraging its own paid-in capital, plus the investment of its "float". The

IDA obtains the majority of its funds from forty donor countries who

replenish the bank’s funds every three years, and from loan repayments,

which then become available for re-lending.

LOANS:

The Bank offers two basic types of loans: investment loans and

development policy loans. The former are made for the support of

economic and social development projects, whereas the latter provide

quick disbursing finance to support countries’ policy and institutional

reforms. While the IBRD provides loans with a relatively low interest rate,

the IDA’s "credits" are interest free. The project proposals of borrowers

are evaluated for their economical, financial, social and environmental

aspects prior to their approval.

GRANTS:

The World Bank also distributes grants for the facilitation of

development projects through the encouragement of innovation,

cooperation between organizations and the participation of local

stakeholders in projects. IDA grants are predominantly used for:

Debt burden relief in the most indebted and poverty-stricken

countries


Improvement of sanitation and water supply

Support of vaccination and immunization programs for the

reduction of communicable diseases such as malaria

Combating the HIV/AIDS pandemic

Support of civil society organizations

Creating initiatives for the reduction of greenhouse gases

OTHER SERVICES:

The Bank not only provides financial support to its member states,

but also analytical and advisory services to facilitate the implementation of

the lasting economic and social improvements that are needed in many

under-developed countries, as well as educating members with the

knowledge necessary to resolve their development problems while

promoting.

AREAS OF CORE OPERATIONS:

Agriculture and Rural Development

Conflict and Development

Development Operations and Activities

Economic Policy

Education

Energy

Environment

Financial Sector

Gender

Governance

Health, Nutrition and Population

Industry

Information and Communication Technologies

Information, Computing and Telecommunications


International Economics and Trade

Labor and Social Protections, Law and Justice

Macroeconomic and Economic Growth

Mining

Poverty Reduction

Poverty

Private Sector

Public Sector Governance

Rural Development

Social Development

Social Protection

Trade

Transport

Urban Development

Water Resources

Water Supply and Sanitation

ROLE OF WORLD BANK WITHIN PAKISTAN:

SUPPORTING REFORMS:

The Federal and Provincial Governments have been

implementing various reform programs aimed at encouraging growth,

investment, and employment generation. Reforms at the provincial level

are specifically aimed at improving delivery of social services like

education, health, clean drinking water, and sanitation. In June 2007, the

World Bank approved a $350 million credit to support ongoing

implementation of the Government's Poverty Reduction Strategy. At the

provincial level, the Bank approved operations worth $430 million for

Punjab, Sindh and the North West Frontier Province to help improve

irrigation, education and human development indicators through


improvements in public finance, governance and financial regulatory

frameworks.

WORKING WITH PAKISTAN POVERTY ALLEVIATION FUND:

The World Bank funded Pakistan Poverty Alleviation Fund

Project (PPAF) is designed to reduce poverty and empower the rural and

urban poor in Pakistan through the provision of resources and services to

the poor, especially women. This is being achieved through an integrated

approach that includes building institutions of the poor and then providing

them with micro-credit loans; grants for small scale infrastructure projects;

training and skill development and social sector interventions. The

program is impacting over 10 million people and has mobilized over

66,000 community organizations (COs) in 27,000 localities across 111

districts in the country. More than 13,000 small scale village-based

projects have been identified, constructed and maintained by

communities’ right across the country benefiting nearly 6 million people.

PPAF has issued 1.5 million micro-credit loans, (average loan-size US$

150), benefiting nearly 9 million people. Over the last 7 years PPAF has

driven the microfinance sector growth from 60,000 borrowers to more than

1.25 million active borrowers in the sector. (www.worldBank.org)

HELPING THE VICTIMS OF THE EARTHQUAKE:

The October 2005 earthquake in Pakistan destroyed or

damaged around 575,000 rural houses, leaving more than 73,000 dead,

and rendering over 3 million people without shelter in North West Frontier

Province (NWFP) and Azad Jammu and Kashmir (AJ&K). In response, the

government created the Earthquake Relief and Reconstruction Authority

(ERRA) and launched an ambitious $1.5 billion owner driven rebuilding

program, largely suited to the mainly rural affected population. Under

ERRA’s Rural Housing and Reconstruction Program (RHRP), partially

funded by the World Bank, homeowners are given around US$3,000 in


installments to build quake-resistant homes with routine visits by

inspection teams to ensure compliance to agreed seismic-resistant

standards. Owner driven reconstruction and rehabilitation of an estimated

463,000 houses have begun and is at various stages of completion. The

RHRP has disbursed over $1.1 billion to program beneficiaries or 75

percent of the overall $1.5 billion estimated cost. (www.worldBank.org)

WORKING FOR THE IMPROVED EDUCATION OUTCOMES:

The World Bank is providing assistance to the Government

of Pakistan in education reforms, at both the national and the provincial

level. This support is provided through development policy operations with

a strong focus on primary and secondary education. These programs

target increasing participation of girls and children from poorer household

through interventions such as student stipends and conditional grant

systems and by working in partnership with the private sector to provide

access to low cost quality education. The World Bank is also assisting the

government in improving the quality and relevance of its higher education

and technical and vocational training system.

FOCUSING ON UN-SERVED LOW-INCOME COMMUNITIES:

In NWFP and AJK*, Bank projects are supporting delivery of

cost effective and sustainable community development schemes, and

basic infrastructure and services, using participatory community based

approaches. To achieve this, the role and capabilities of local

governments at the district and lower levels have been strengthened to

extend technical, financial, and management support to Community Based

Organizations (CBOs). CBO are being mobilized and their capacity is

being enhanced to increase their participation in development activities.

Governance, transparency, and accountability are being more effective

through improvements in operational, monitoring and evaluation, and

financial and budgetary procedures for project implementation. In AJK, the


project has already reached a population of 893,000 against the original

target of 830,000, through 320 CBOs. Out of the 54 Tehsil Municipal

Authorities (TMA) in NWFP, 50 are now participating in the Project.

RELYING ON LOCAL EXPERTISE

Around 90 percent of World Bank’s staff is in Islamabad office, plus

additional staff in their Washington office is Pakistani. While a large part

of World Bank’s value is its global experience and expertise, local

knowledge is indispensable to effective development. World Bank also

works closely with the Pakistan government, civil society and communities

in designing the support for the country. Most importantly overall

assistance to the country is specifically designed to support its own

development goals. World Bank has periodic client satisfaction surveys

through which it assess how their services are perceived by a cross

section of society including the government, private sector, civil society,

academia, and media etc. These polls are carried out globally by reputed

international firms.

HELPING PAKISTAN FIGHT AGAINST POLIO:

As part of Bank’s efforts to help eradicate polio globally, The World

Bank approved two projects $42.71 million in 2003 and $ 74.27 million in

2006 for Pakistan to purchase the oral polio vaccine. The money is part of

an innovative financing partnership (IDA Buy-down) between the World

Bank, the Bill & Melinda Gates Foundation, Rotary International, and the

United Nations Foundation. These organizations have formed the

Investment Partnership for Polio, an initiative to help eradicate polio

worldwide. The loan to Pakistan will help the country’s Polio Eradication

Initiative which aims to make Pakistan a Polio free country. Since 1997 the


number of polio cases has decreased from 1147 to 31 in 2007. The first

project has been successfully completed. Based on an independent third

party assessment, the first credit (US$ 42 million) has been converted into

a grant and written off for the Government of Pakistan

STRATEGIES OF WORLD BANK:

The World Bank does not work alone, but in cooperation with

various groups including, communities, and civil society, government, and

donor agencies. The joint effort of these groups is required to significantly

reduce poverty. The World Bank provides technical expertise and funding

in areas such as health, education, public administration, environmental

protection, agriculture, and basic infrastructure.

Working with the government and civil society, the World Bank has

developed an action plan known as the Pakistan Country Assistance

Strategy which describes what kind of support and how much could be

provided to the country beginning June, 2002 and covering a period two

years . The strategy was designed to directly support the government's

Poverty Reduction Strategy and focuses on three key areas:

strengthening economic stability and government effectiveness;

strengthening the investment climate;

Supporting pro-poor and pro-gender equity policies.

The World Bank also produces studies and reports based upon its own

analysis of a given issue. Topics of research come from the

Bank's Country Assistance Strategy. This research is intended to provide

an unbiased perspective on a range of specific development challenge.


It also reviews of economic policies (Country Economic Memoranda),

fiscal spending (Public Expenditure Review), environmental

reviews (Environmental Action Plan), and other specific topics.

WORLD BANK’S ASSISTANCE TO PAKISTAN:

The World Bank’s strategy is to support implementation of the government

of Pakistan’s own poverty reduction strategy paper (PRSP) and to provide

financing and technical assistance for both economic and human

development. The strategy is built around three main themes which

correspond to the pillars of PRSP.

SUSTAINING HIGH AND BOARD BASED GROWTH AND IMPROVING

COMPETITIVENESS:

Pakistan’s PRSP emphasize the importance of sustaining rapid and broad

based economic growth as the principle means of reducing poverty. While

significant progress has been made in reducing state intervention in the

economy and improving the regulatory framework for private business,

firms continue to face significant policy, regulatory, and infrastructure

constraints.

IMPROVING GOVERNANCE:

Improving government performance is a central element of Pakistan’s

poverty reduction strategy. The bank is assisting the government’s efforts

in this area by supporting reforms in public financial management and

procurement, restructuring of tax administration bureaucracy; support for


civil service reforms; and assistance to local and municipal government to

improve their capacity for delivering public services.

IMPROVING LIVES AND PROTECTING THE VULNERABLE:

World bank also support Pakistan’s effort to improve the life of its citizens

through efforts to improve access to, and quality of public service in

education, health, electricity, water supply and sanitation, with an

emphasis on addressing gender disparities.

The bank will continue to support implementation of targeted activities in

poor communities especially in rural drought prone areas. The bank will

seek to build on the successful experience of the Pakistan poverty

alleviation fund (PPAF) which has reached 6500 communities through

micro credit and community driven physical infrastructure projects, and

ongoing community infrastructure projects in AJK and NWFP.

SUPPORT OF WORLD BANK ON ECONOMIC STABILITY:

As Pakistan has experienced severe external and internal shocks in the

past year and is confronting a very difficult macroeconomic situation, like

the rise in international oil and food prices sharply inflated the country's

import bill and the subsequent slowdown in the global economy

dampened external demand for Pakistan's exports. It is also noted that

"political turmoil and uncertainties affected investor confidence", leading to

capital outflows.

The World Bank has designed the Poverty Reduction and Economic

Support credit to support measures that promote macroeconomic stability.

It also seeks to improve Pakistan's competitiveness by bolstering the

financial sector and cutting barriers to business.


The government of Pakistan has taken important policy steps to stabilize

the economy. These polices have succeeded in reducing external

imbalances, rebuilding foreign exchange reserves, narrowing fiscal

overruns and lowering inflation.

However, the sharp deterioration of the global economy poses

significant risks to exports, remittances, and external financing. This

underlines the importance of Pakistan regaining economic stability and

protecting its poorest citizens during the process.

CRITICISM ON WORLD BANK:

The World Bank has long been criticized by a range of non-

governmental organizations and academics, including its former Chief

Economist Joseph Stiglitz, who is equally critical of the International

Monetary Fund, the US Treasury Department, and US and other

developed country trade negotiators. Critics argue that the so-called free

market reform policies—which the Bank advocates in many cases—in

practice are often harmful to economic development if implemented badly,

too quickly ("shock therapy"), in the wrong sequence, or in very weak,

uncompetitive economies.

Criticism of the World Bank encompasses a whole range of issues but

they generally centre on concern about the approaches adopted by the

World Bank in formulating their policies. This includes the social and

economic impact these policies have on the population of countries who

avail themselves of financial assistance from the institutions

MONOPOLY OF POWERFUL COUNTRIES:

One of the strongest criticisms of the World Bank has been the way

in which it is governed. While the World Bank represents 184 countries, it


is run by a small number of economically powerful countries. These

countries choose the leadership and senior management of the World

Bank and as such, their interests are dominant within the bank.

DUAL ROLE OF WORLD BANK:

The World Bank has dual roles that are often contradictory: that of

a political organization and that of an action-oriented organization. As a

political organization, the World Bank must meet the demands of donor

and borrowing governments, private capital markets as well as other

international organizations. As an action-oriented organization, it must

fulfill the role of a neutral organization specialized in delivering

development aid, technical assistance, and loans. These dual roles are

often inconsistent with one another. The World Bank’s obligations to donor

countries and private capital markets have caused it to adopt policies and

programs that endorse liberal economic theory which dictates that poverty

is best alleviated by the implementation of market-oriented policies.

SELF INTERESTS OF U.S:

Some critics of the World Bank believe that the institution was not

started in order to reduce poverty but rather to support United States'

business interests, and argue that the bank has actually increased poverty

and been detrimental to the environment, public health, and cultural

diversity Some critics also claim that the World Bank has consistently

pushed a neoliberal agenda, imposing policies on developing countries

which have been damaging, destructive and anti-developmental. Some

intellectuals in developing countries have argued that the World Bank is

deeply implicated in contemporary modes of donor and NGO driven

imperialism and that its intellectual output functions to blame the poor for

their condition.

INJUSTICE WHILE CHOOSING PRESIDENT:


It has also been suggested that the World Bank is an instrument for

the promotion of US or Western interests in certain regions of the world.

Consequently, seven South American nations have established the Bank

of the South in order to minimize US influence in the region Criticisms of

the structure of the World Bank refer to the fact that the President of the

Bank is always a citizen of the United States, nominated by the President

of the United States (though subject to the approval of the other member

countries). There have been accusations that the decision-making

structure is undemocratic, as the US effectively has a veto on some

constitutional decisions with just over 16% of the shares in the

bank; moreover, decisions can only be passed with votes from countries

whose shares total more than 85% of the bank's shares.

LACK OF TRANSPARENCY:

A further criticism concerns internal governance and the manner in

which the World Bank is alleged to lack transparency to external publics.

In 2008, a World Bank report which found that bio fuels had driven food

prices up 75% was not published. Officials confided that they believed it

was withheld from publication to avoid embarrassing the President of the

United States, George W. Bush.

CONDITIONS IMPOSED BY WORLD BANK:

Critics of the World Bank are concerned about the conditionality

imposed on borrower countries. The World Bank often attach loan

conditionality based on what is termed the 'Washington Consensus',

focusing on liberalization—of trade, investment and the financial sector—,

deregulation and privatization of nationalized industries. Often the

conditionality are attached without due regard for the borrower countries'

individual circumstances and the prescriptive recommendations by the

World Bank fail to resolve the economic problems within the countries.


ETHICAL ISSUES:

With the World Bank, there are concerns about the types of

development projects funded by the IBRD and the IDA. Many

infrastructural projects financed by the World Bank Group have social and

environmental implications for the populations in the affected areas and

criticism has centered on the ethical issues of funding such projects. For

example, World Bank-funded constructions of hydroelectric dams in

various countries have resulted in the displacement of indigenous peoples

of the area. There are also concerns that the World Bank working in

partnership with the private sector may undermine the role of the state as

the primary provider of essential goods and services, such as healthcare

and education, resulting in the shortfall of such services in countries badly

in need of them.

INDUSTRIALIST COUNTRIES:

There are also criticisms against the World Bank governance

structures which are dominated by industrialized countries. Decisions are

made and policies implemented by leading industrialized countries

because they represent the largest donors without much consultation with

poor and developing countries.

CONCLUSION:

The World Bank is the largest public development institution in the

world, lending around US$ 25 billion a year to developing countries. The

main purposes of the Bank is to assist in the reconstruction and

development of territories of members by facilitating the investment of

capital for productive purposes and to promote the long range balanced

growth of international trade and the maintenance of equilibrium in

balances of payments by encouraging international investment.


The Bank aims to achieve these goals through the provision of

long-term loans to governments for the financing of development projects

and economic reform. The World Bank responded with structural

adjustment loans which distributed aid to ailing countries while enforcing

policy changes meant to mitigate domestic inflation and fiscal imbalance.

Some of these policies included encouraging production,

investment and labor-intensive manufacturing, changing real exchange

rates and altering the distribution of government resources

In spite of all these positive aspects, there are also some critics

behind the screen which are not easy to omit. They are highly focused on

developed countries and developing countries are ignored. They also

impose a lot of conditions on credit and loans which are difficult for

developing countries to fulfill.


project - international finance

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